SIPS RPS RMD Update – Secure Act 2020
Recently Congress passed the Secure Act which embodied several changes to retirement planning and how these accounts work. Some of these changes will have an impact on the SIPS Retirement Planning System and updates are now available in your software.
RMD’s at Age 72
RMD’s will now only be required if you attain the age of 72. RMD calculations in SIPS RPS software have been revised to reflect that change. When building a new case and choose an “income type” of RMD, it will use the new rules and start the RMD requirement in the year that the client turns 72.
An existing SIPS RPS case will not change unless you opt to make that change. For any existing case, anything that happened in the past will stay exactly as is.
Example 1. In a SIPS RPS Case created five year ago, the first five years would use the old calculations. It will use the rules as defined in the past. In this example, the client is 72 today, but you started the plan five years ago when they were 67. When they turned 70 ½ 2 years ago, they were required to take out RMD’s at that point and nothing in the software will change.
Example 2. In an existing SIPS RPS case where the client is younger than 70 ½ today, and your plan utilized the “income type” of RMD, it would have had distributions occurring in a future year. To make sure that the new change did not alter your plans, we replaced the RMD distribution for ages 71 (and potentially age 70) with a fixed income distribution. Of course, at age 72, the new rules would correctly calculate the RMD. If you do not want your plan to take income from that account in the years 70 or 71 simply remove the fixed income amounts assigned to those years.
Beneficial IRA RMD’s
Rules for Inherited Beneficial IRA’s (Stretch IRA’s) have changed under the Secure Act. We have made no changes in SIPS RPS software as the calculations are the same.
The rule change is that the only people who are within 10 years of age of the deceased will qualify for the stretch beneficial RMD. This effectively eliminates having your natural born children inherit and then stretch your IRA. Note that for any death prior to Jan 1, 2020, the old laws are grandfathered in.
If you had illustrated a potential future stretch IRA in a SIPS RPS case that falls outside of these new rules you will need to make adjustments to eliminate the stretch as appropriate. Remember that if the deceased died prior to this year, the old laws are grandfathered in. The new rules do not mean that your children cannot inherit an IRA; they can’t use the previous RMD rules. The Secure Act requires that the inherited account be liquidated by the heir within 10 years. You can show this in your case by using the “liquidate” function in the income planning menu.
If you have any questions in this matter please feel free to contact us at [email protected] or 1-888-449-6917